Follow us on our Journey

OK, we’ve crawled out of our bunker to survey the havoc wreaked upon us from last weeks storm on the ASX. Is the fall over? Do we rush in to buy given the low prices?

The issues that caused the fall (Ukraine and rising interest rates and inflation) are perhaps in part resolved as the lower stock valuations will factor in interest rate rises, but European geopolitical issues remain and are perhaps more heightened now than a week ago.

The XAO fell 11.7% from its peak and that is in line with most of the similar corrections over the past 10+ years, suggesting a bottom may have been reached.

Scanning my watchlist stocks shows some have been structurally damaged by selling pressure and may take time to recover. However, many are at support levels and/or bounced off support levels yesterday – ie they are primed to rise. The US market closed up strongly in positive territory for the week – so we could see Friday’s bounce resume Monday. But will it be the Dead Cat bounce?

Looking back at the history of corrections over the past decade, most showed some instability for a few weeks after their bottom before climbing back. A couple did just turn up and keep on going, but they were a minority. The interesting thing for me was to look at the bigger falls – corrections of more than 11% through to the two bear markets we’ve seen since the GFC. The majority of these showed a small recovery (perhaps just a week) in their decline around the 11% level (ie where we currently are) before continuing to fall (the said Dead Cat bounce).

My Stocks to Watch this week are only worth looking at if you think the market is now going to recover and not tip over into further falls.

I may not have time to provide detailed analysis on my views for these shares as I would normally.

OZL, PDN, TRS and TLS were on last weeks list and all lost ground last week (TRS by 12%) but all are at strong level of support and set to recover.

I’ve added MQG, JLG and FLT because they are all at strong levels of support. Also included is NCM which needs a bit more explanation.

Gold is interesting in that its price has fallen to a level of support that has caused price to bounce up from 3 times in the past 6 months – meaning gold might show a strong recovery in the next few weeks and were it to break and close above $1,860 then it should head quite a bit higher. That said, NCM which is our largest gold producer made a new low yesterday – it’s lowest price in 2 years. And, lower lows are a sell signal. On a more positive note, NCM’s low made a double bottom with the prior March 2020 Covid fall low. Double bottoms suggest very material rises around the corner. Sounds good, but be aware NCM needs to rise to make a true bottom (not just a low) and validate that pattern. At the moment all we have is a falling price.

Oh and if you think further slides into the abyss are likely, buying BBOZ could be worth thinking about. BBOZ moves inversely to the ASX, but being a geared ETF, yesterdays 2.1% gain by the XAO meant a 5.4% fall in BBOZ. Good if the market is falling but bad if its rising.

Good luck to all for the coming week. There will probably be no blog next from me next week - unless a trip I’m planning in the remote Victorian bush near the headwaters of the Murray River is rained out.

Contact

Robert Norman

Phone: 0428 346 951
Email: robert@sharecharting.com.au

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